To Rescue the Economy; Rescue Consumers

The aftershocks from the September terrorist attacks continue to reverberate seemingly right from the zone of devastation that was once the World Trade Center complex and across the American economy.

From businesses once housed in the buildings themselves, to those in the immediate vicinity, to an entire web of local businesses, New York City’s economy has suffered a staggering blow. Official statistics indicate the city’s jobless rate leapt to 6.3 percent last month, from 5.8 percent in August and 5 percent flat for July.

But the most alarming fact about the statistic is that, because the jobless survey was conducted the week of the terrorist attacks on New York and Washington, it’s a measurement that yet understates the wave of joblessness that’s swept over the city.

Nationally, 490,000 laid-off workers filed new claims for unemployment insurance last week, marking the fourth consecutive week in which new jobless claims approached numbers not seen since the last months of the recession which ended in 1992. No one doubts that the nation’s unemployment rate is now higher than the 4.9 percent it registered in early September before the attacks.

These numbers are no surprise, given the blow the already-softening economy sustained when, after September 11, airlines, hotel, and tourism industries all began laying off workers in droves.

But they have intensified concern at a time when states’ revenues have plummeted—”falling off a cliff,” in the words of one official—and numerous states face a dire possibility of having to cut spending and raise taxes simultaneously.

Looming in the background are the Congressionally-imposed deadlines for moving people off the welfare rolls by next year. A recent federal study has found that many states’ welfare rolls were increasing even before September 11—a trend almost certain to intensify now because, overwhelmingly, most of the 2.5 million adults who’ve left the welfare rolls since 1996 hold the low-skilled positions that are the first to go in an economic downturn.

The Bush Administration and Congress are debating the key features of an economic stimulus package to jump-start the U.S. economy. Ideas under discussion include tax cuts for corporations, cut in the capital gains tax, and even relief for investors who have lost money in the stock market.

However, federal and state governments must also help those victims of the economic downturn whose case is most compelling but whose voice is almost always the quietest: hotel workers, waiters, clerks in small shops, people who worked for cleaning services, and others at the lower end of the wage scale.

Many of these workers, a significant proportion of whom worked part-time, barely made enough money to make ends meet to begin with. Now, few have any savings to speak of to tide them over, and many are up to their eyeballs in credit-card debt.

You’d think these workers would be prime candidates for unemployment benefits. But as the legendary Cab Calloway used to croon, it ain’t necessarily so.

According to a recent story in the New York Times, states are rejecting many of these workers’ applications for unemployment benefits because they didn’t earn enough money over the recent 18 months to meet the states’ requirements.

Harvard University economist Richard B. Freeman has a simple—and correct—assessment of this system, under which these workers have paid unemployment insurance when they worked, but now can’t get unemployment benefits. He said: “It’s not right.”

Any sensible economic stimulus plan crafted by Washington should start by quickly repairing the social safety net so that it shields these unemployed wage earners from sudden poverty.

Then, Congress should move on to liberalize unemployment insurance in order to help the laid-off workers who are bearing the brunt of the slowdown.

And then, boost the purchasing power of working people—who as consumers are the key to a thriving economy—by providing a tax rebate to low-wage workers, and, to lower their debt burden, by allowing them to deduct the interest on their credit-card bills from their income taxes, just as they used to be able to do.

We should remember that consumers fueled the economic recovery in the 1990s. With an economic stimulus package aimed right at them, they can come to the economy’s rescue once again.